A is corrent. The requirement is to determine the correct presentation of deferred income tax expense from temporary differences related to depreciation of plant assets in the statement of cash flows. When using the indirect approach to determine cash flows from operating activities, noncash deductions from net income should be added back to determine cash flows from operating activities. Since the deferred income tax expense did not use cash but was subtracted in determining net income, it is proper to add it back to net income in cash flows from operating activities.
B is incorrect. Deferred income tax expense should be added to, not deducted from, net income.
C is incorrect. The deferred tax expense is not a cash inflow or outflow and is not a financing activity.
D is incorrect. This item is an operating activity item which must be included in the determination of net cash flows from operating activities. Even though the deferred tax is a noncash item it must be used to adjust net income to cash flows from operating activities.
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